Advertisement shares are improving. Meta Platform (NASDAQ: META) The stock has soared over the past year, with a big jump in revenue and earnings growth. Alphabet (NASDAQ:GOOG,NASDAQ:GOOGLE) also rebounded well. Still, both companies lost market share in 2022 and saw multiple quarters of net income declines. META also reported a decline in revenue in 2022. However, an AdTech company, Perion (NASDAQ:PERY), thrived while others struggled in 2022. The company is still growing, which has led me to take a bullish stance on this stock.
This “stock to watch” also achieves double-digit revenue growth in 2023 while approaching a 20% net profit margin.
High growth, low valuation and zero debt
Perion is a small-cap stock that offers a rare combination of growth, value, and fiscal strength. The company closed the third quarter with revenue growth of 17% year over year. Perion operates in several high-growth advertising areas, such as connected TV and digital out-of-home advertising. Both segments are projected to achieve double-digit compound growth rates over several years.
The lackluster 2023 stock performance has resulted in a 9.5x Forward P/E ratio and 0.43 PEG ratio. The valuation gets even better when considering enterprise value instead of market cap. While Perion has a market capitalization of $1.38 billion, the company’s enterprise value is only around $850 million.
There is only one way for a company’s enterprise value to be less than its market capitalization. A corporation must have a cash position that exceeds its total debt. Perion’s debt-to-equity ratio is 0%. The company closed the quarter with $197.8 million in cash and cash equivalents, as well as $253.9 million in short-term bank deposits.
Perian has a lot of cash that it can use to acquire more advertising companies. The company recently acquired Hivestack for $100 million to improve its digital out-of-home advertising. Hivestack has many corporate customers who will now be introduced to Perion’s multi-channel advertising solutions.
This will not be the last acquisition. Perion CEO Tal Jacobson noted in a press release that the company will continue to make additional acquisitions.
Why did Perion decline in 2023?
Growth rate, valuation and lack of debt make Perion attractive, but investors weren’t convinced in 2023. The stock has declined 13% over the past year. Investors can appreciate the long-term potential of this stock given its 795% gain over the past five years.
Perion’s downturn was not driven by financial conditions or excessive valuations. I can only think of two reasons that explain why Peryan was not a winner in 2023. The first reason is that Perion is based in Israel. Many Israel-based corporations saw their stock prices decline at the beginning of the conflict. Perion’s share price fell nearly 20% when the conflict began in October.
The second reason is the unfounded fear of Perion and Microsoft (Nasdaq: MSFT) to break. The partnership allows Perian to generate revenue through Bing’s search engine. The contract is set to expire this year.
Spruce Point Capital Management raised the alarm of Perion’s “excessive reliance” on the contract. However, Perion has diversified into several revenue streams.
If the companies do not reach an agreement, it would certainly be a blow to Perion. Microsoft accounts for about 45% of Perion’s total revenue. However, this is not a huge blow by any means, especially with the low valuations. The stock price is as if a deal with Microsoft has already been reached.
Furthermore, Perion and Microsoft have a good relationship since 2010. The company has agreed to new contracts several times, extending the term of each contract. In 2020 the agreement was extended for four years. The two companies had earlier reached a three-year agreement in 2017.
Perion was named Microsoft Advertising’s 2021 Supply Partner of the Year, showing that the relationship is still strong. A new agreement in 2024 and easing of tensions in the Middle East could send Perian stock skyrocketing.
Is Perry Stock Worth Buying According to Analysts?
Perion doesn’t get as much coverage because it’s an under-the-radar stock. Of the four analysts who rated the stock, three gave it a Buy rating, while one analyst gave it a Hold rating, giving it a Strong Buy consensus rating.
Perion receives a $45 price target from Oppenheimer in October 2023. This is the highest price target ever. The average PERI stock price target of $36.75 is 25.2% above the current price.
The Finish Line on Perion Stock
Perion has the financial, growth verticals and valuations to generate meaningful returns for long-term investors. Despite gaining market share while other advertising companies pulled back, Perion is still trading at a 10x Forward P/E ratio. Additionally, the company continued to deliver strong financial performance, even as its stock price remained stagnant.
The stock’s biggest weakness is its ambiguity. However, investors are likely to bid up the stock’s price as it continues to report strong earnings growth. It’s shocking to see a stock decline over the past year, but the poor performance potentially provides an opportunity to buy shares before they move further.
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Source: finance.yahoo.com
